Aether Industries' Rs 800 crore IPO opens today. Should you subscribe?

Analysts believe that Aether's multiple chemistry competencies to use for a wide array of products makes it a distinguished market player compared to other chemical companies

Specialty chemical manufacturer Aether Industries' initial public offering (IPO) will hit primary markets on Tuesday, May 24. The three-day public issue will close on Thursday, May 26. With a price band fixed at Rs 610-642 per share, the company plans to raise Rs 808.04 crore via the IPO. While 50 per cent of the issue is reserved for qualified institutional buyers (QIB), retail investors and non-institutional investors’ comprise 35 per cent and 15 per cent of the issue, respectively.

The Gujarat-based company focuses on producing advanced intermediaries and specialty chemicals that involve complex and differentiated chemistry with technology as core competencies. Analysts believe that Aether's multiple chemistry competencies to use for a wide array of products makes it a distinguished market player than other chemical companies.

Aether plans to utilise Rs 627 crore of fresh issue to fund capital expenditure requirements of Greenfield projects, repayment of outstanding borrowings, and general corporate purposes.

Financials

Meanwhile, Aether reported 18.45 per cent growth in net profit for nine months that ended in December 2021 from 14.30 per cent, a year ago. However, revenue fell to 49.04 per cent for twelve months that ended in March 2021 from 50.02 per cent in FY20.

Grey market premium

In the unofficial market, shares of Aether Industries were trading at Rs 10 premium to its upper price band. Once listed, Aether will join its peers like Clean Science and Technology, Navin Fluorine International, Vinati Organics, PI Industries, and Fine Organic Industries.

Anchor investors

Ahead of the IPO, Aether Industries raised around Rs 240 crore from anchor investors. It has allocated a total of 37,42,495 equity shares to anchor investors at Rs 642 per share, taking the transaction size to Rs 240.26 crore, reprts suggest. READ ABOUT IT HERE

Key risks

According to analysts at Angel One, they believe that since the business is heavily dependent on manufacturing facilities, any shutdowns or slowdown in manufacturing operations can have adverse impact on the company. That apart, non-compliance or changes in any regulatory rule can hamper the business as well.

Here is what top brokerage houses recommend for Aether Industries IPO:

Religare Broking | NEUTRAL
 

The brokerage firm believes that the company is well-placed to benefit from growing industry trends given its differentiated portfolio of market-leading products. A constant focus on research and development (R&D) and long-standing diversified customer base will help the company outperform industry growth.

Analysts believe that the Indian specialty chemicals market is expected to grow at 11.2 per cent CAGR over CY20-25. Given this, the company is primed to benefit from its product portfolio expansion and diversification in other business segments.

However, the brokerage firm believes that despite a strong financial performance, valuations appear expensive at ~71x FY22 annualized post EPS. Volatile raw material prices and high debt level continue to shadow the company’s performance; hence, the brokerage firm recommended a ‘neutral’ stance on the IPO.

Angel One | SUBSCRIBE
 

Analysts at Angel One believe that Aether Industries' IPO valuations seem to be reasonable considering its historical top-line and bottom-line CAGR of ~50 per cent and ~75 per cent, respectively over FY19-21. Aether's diversified customer base, strong financial track record, and higher return on equity makes it a favorable subscription, it said. Hence, the brokerage firm recommended ‘subscribe’ ratings on the issue.

Axis Capital | UNRATED

Analysts at Axis Capital believe that the company’s R&D focus to leverage chemistry and technology has acted as a differentiating factor to attain leading market positions. Moreover, the company’s products have applications across a wide spectrum of uses in pharmaceutical, agrochemicals, material science, and coatings, among many others makes the portfolio differentiated.

Moreover, analysts believe that Aether is one of the few companies in the specialty chemicals sector in India who has deployed continuous reaction technology as a core technology competency at all stages.

However, the brokerage firm believes that entry barriers, customer validation or approvals, continuous improvement in operating efficiencies will act as headwinds for the company.